What is a 501(c)(3) public charity?

A 501(c)(3) public charity is an entity that: (1) has been organized under state law, (2) is operated for a 501(c)(3) purpose, (3) benefits an unidentified charitable class of people (e.g., those who suffer from AIDS), (4) engages in activities that are non-political in nature, and (5) derives at least one-third of its support from the general public. A 501(c)(3) purpose includes--but is not limited to--educational, religious, scientific, medical and charitable endeavors.

Is my organization tax-exempt once I file my nonprofit articles of incorporation?

No. While nonprofit status is granted by your state, tax-exempt status is granted at the federal level by the IRS. You must complete a separate IRS application to be granted tax-exempt status at the federal level.

What is the difference between a "private foundation" and a "public charity"?

Most people forming nonprofit organizations prefer to set up a 501(c)(3) public charity because the opportunities for public donations are far greater. Private donors to a 501(c)(3) "public charity" may donate up to 50% of their adjusted gross income. Donors to a "private foundation" can only donate up to 30% of their adjusted gross income.

Ultimately, the IRS will look at an organization's primary source of financial support to determine if it qualifies as a public charity or a private foundation. In general, if an organization derives its support from a relatively few number of people, the IRS will classify the organization as a private foundation. If the organization's source of support is large and varied enough, the IRS will usually classify the foundation as a public charity.